MB CHARGE CHROME INDEX: China's market stirs after destocking

Charge chrome import prices in China have edged up in recent weeks on slightly improved demand and a drawdown in stocks.

Metal Bulletin's China import charge chrome index 50% Cr was calculated at 96 cents per lb on a cif basis in Shanghai on May 25, which was launched that day, compared with prices as low as 90 cents previously.

Prices are expected to continue to increase and global market participants will be watching developments in China closely, particularly with European benchmark price negotiations starting in the coming weeks.

“I think we’ve already seen the bottom in May,” a trader at a Chinese trading company told Metal Bulletin.

“A large consumer set a price of 7,480 yuan and nobody offered so they increased the price twice,” the trader said, noting that it was highly unusual for a stainless steel mill to lift its bid prices twice in rapid succession.

The flat Chinese price has been one of the main arguments undermining producers’ calls for higher contract prices.

“It could be quite tough to get a rise in the benchmark without a further rise in the Chinese price,” a market source told Metal Bulletin.

The European market has been tight since February when South African producers started shutting furnaces under electricity buyback deals with state power group Eskom.

The shutdowns, implemented by all but one of the major producers, have reduced South African production by around 30% over the period of the shutdowns.

Some South African producers have had to buy from their rivals to cover their contractual obligations as stock levels dwindle.

European high carbon ferro-chrome has been trading at $1.16-1.22 per lb since April 20, compared with $1.16-1.20 per lb on February 24 and as little as $1.05-1.15 per lb at the start of the year.

Charge chrome, usually a discount product, has traded at similar levels to high carbon material in recent months in Europe.

Despite the European tightness and slightly higher import prices in China, the Chinese market remains subdued.

But market participants have called for a reliable reference price for charge chrome in China for some time.

“Today’s market is quiet but that does not negate the need for an index,” a second market source said.

South African producers and Chinese buyers express opposite views on the outlook for Chinese demand for South African ferro-chrome.

Chinese market participants say the country is becoming increasingly self-sufficient for its ferro-chrome needs and therefore less reliant on South African imports.

“China will become less reliant this year, but we don’t need to worry about the European and US markets. The only problem for South Africa is China not buying any more but they will never export,” the trader said.

South African producers say there is a perceived shortage on China due to the stock drawdowns and say Chinese ferro-chrome producers, which are operating at low capacity, will not be able to ramp up fast enough to avoid importing good volumes.

“We are hoping the perceived local shortage in China will help a bit. Domestic producers there run at low capacity and are increasing, but not as much as domestic consumers would like,” a source at a South African producer said.

Some Chinese buyers insist the furnace shutdowns in South Africa will lead to more UG2 ore being sent to China because it is not being smelted in furnaces in South Africa.

South African ferro-chrome producers insist this is not the case, because the ore that is not being smelted due to the shutdowns is mainly the higher quality LG6 ore. Bid prices from China have not reached a level that suppliers will accept, they said.

They also point to China’s import statistics, which show that while ferro-chrome imports from South Africa are falling, they still make up around two thirds of China’s ferro-chrome imports.

Metal Bulletin asked a source a second South African ferro-chrome smelter about the extent of the mutual dependence of South African producers and their customers in China.

“South African producers need to rely on China to an extent. Some rely more than others on the Chinese market,” the source told Metal Bulletin.

“It’s a matter of time before the industry needs to consolidate or close down. In terms of alloy sales to China I’d say we’ve got at least another couple of year, worst case scenario,” the source said.

“Yes the South African market share is decreasing but China can’t survive without [any] South African alloy, that’s ridiculous. The numbers are the numbers.”